US & World Daily Markets Financial Briefing 26-01-2007

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Microsoft Wall Street fluctuates on durable goods

NEW YORK - Wall Street fluctuated in the first hour of trading after government data showed robust orders for durable goods and heavy equipment maker Caterpillar Inc. issued a better-than-expected forecast.

Investors who sold stocks sharply lower Thursday were encouraged by the data that indicated the economy is not slowing as fast as some had feared. The Commerce Department said orders to U.S. factories for big-ticket manufactured goods rose in December by the largest amount in three months, led by demand for commercial aircraft.

In addition, a stronger-than-expected quarterly profit from Microsoft Corp. lent support to technology stocks.

Despite the choppy trading early in the session, the market appeared to be recovering from its worst performance to date in 2007, where the Dow Jones industrials suffered a triple digit decline. The steep drop was triggered by a sell-off in the bond market, which also stabilized in early trading on Friday.

In the first hour of trading, the Dow Jones industrial average fell 6.97, or 0.06 percent, to 12,495.59.

Broader stock indicators also dipped. The Standard & Poor's 500 index was down 0.17, or 0.01 percent, at 1,423.73, and the Nasdaq composite index fell 3.95, or 0.16 percent, to 2,430.20.

Bonds held steady, with the yield on the benchmark 10-year Treasury note flat at 4.88 percent from late Thursday. The bond market on Thursday was hit by a lackluster report on sales of existing homes, which sent long-term interest rates sharply higher and caused concern about the housing market.

The dollar was mixed against other major currencies, while gold prices fell.

Oil prices edged up after a steep decline in the previous session because of doubts that OPEC members are making the production cuts promised last year. A price of a barrel of light sweet crude rose 56 cents to $54.79 in premarket
trading on the New York Mercantile Exchange.

Caterpillar, whose earnings are heavily tracked as an indication about the pace of U.S. construction, rose $1.59, or 2.7 percent, to $61.22 after it reported a 4.3 percent rise in fourth-quarter profit. The company also stuck by its full year forecast, which it believes will show continued strength in industries like mining, oil and gas.

Technology stocks rose after Microsoft reported second-quarter results beat Wall Street expectations, and projected double-digit growth in all of its core businesses through the rest of the fiscal year that ends June 30. Strong sales of its Xbox video game console helped offset the delayed release of its latest operating system, Vista.

Shares rose 66 cents, or 2.2 percent, to $31.12.

The Russell 2000 index of smaller companies was down 3.61, or 0.46 percent, at 780.58.

Overseas, Japan's Nikkei stock average fell 0.21 percent. In afternoon trading, Britain's FTSE 100 and France's CAC-40 were down less than 0.01 percent, while Germany's DAX index was up 0.10 percent.

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LONDON - The yen remained steady after being pushed onto the defensive overnight by relatively soft Japanese inflation data, which cast further doubt on the likelihood of a rate hike next month from the Bank of Japan.

Figures showed that Japan's December core CPI rate decelerated to 0.1 pct on an annual basis from expectations of a second consecutive 0.2 pct rise.  In addition, the measure, which excludes food and energy, actually fell 0.3 pct.

The yen has suffered after the BoJ's failure to raise interest rates last week and mounting speculation that weakness in the Japanese currency will be a key focus at the upcoming G7 meeting of finance ministers in Germany.

Elsewhere, analysts said this morning's euro zone money supply data reinforced concerns over monetary growth at the European Central Bank.

M3 money supply growth accelerated to 9.7 pct year-on-year in December from 9.3 pct in November. Markets were looking for a 9.4 pct reading in December.

As in November, M3 grew at its fastest pace since 1990 in December. M3 growth reached a rate of 10.2 pct in Feb 1990.

The ECB has been gradually raising its key refi rate to the current 3.50 pct and is widely expected to continue lifting borrowing costs over the coming months to at least 4.0 pct.

The dollar has also been buoyed recently by diminishing expectations of any imminent rate cut from the US Federal Reserve, which has kept its benchmark rate unchanged at 5.25 pct for four consecutive meetings after raising it 17 times in a row.

Meanwhile, the pound remains under pressure after its short-lived move above 1.99 usd.

Its rally to the psychologically important 2 usd level earlier this week was brought to an abrupt halt, when it was revealed that the Bank of England's surprise decision to raise interest rates in January was tighter than had been expected.

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Leading shares remained lower at midday, weighed down by weakness across miners and property stocks, although a clutch of M&A stories and indications of a slightly higher start by Wall Street helped the FTSE 100 recover from its early lows, dealers said.

By 12.10 pm, the FTSE 100 index was down 12.7 points at 6,256.6, although above its early low of 6,226.4.

Volume was below average, with 775.8 mln shares changing hands in 146,193 deals.

Mining stocks remained under pressure, with copper, silver and gold prices all weakening in morning trade.

Xstrata topped the FTSE 100 fallers, with a drop of 53 pence to 2,371, amid reports that the group is facing strike action at its Sudbury nickel unit in Canada.

This morning however, HSBC upgraded Xstrata to 'overweight' from 'neutral' and raised it price target to 2,750 pence, from 2,550.

Elsewhere, in the sector, Antofagasta lost 8 pence to 461, BHP Billiton fell 14-1/2 pence to 944-1/2 and Rio Tinto dropped 39 pence to 2,701.

Property stocks were also weaker, as investors took profits after yesterday's bullish sector note from JP Morgan.

Liberty International lost 19 pence to 1,294, hit by cautious comment from HSBC, which reiterated its 'underweight' stance on the group on valuation grounds and ahead of the group's preliminary interims in February.

Sector peer Hammerson lost 24 pence to 1,479, while Land Securities eased 38 pence to 2,178 and Slough Estates dropped 10-1/2 pence at 763-1/2.

Drax shares were also lower, down 13-1/2 pence to 704-1/2, after JP Morgan yesterday cut its rating on the energy group to 'underweight' and slashed its target to 645 pence from 845. Thursday also saw Citigroup cut its price target to 650 pence from 700 on expectations of moderate to weak energy prices during 2007.

Elsewhere, shares in medical devices group Shire were hit by a recommendation downgrade to 'hold', from 'buy' by Citigroup on valuation grounds, with a slightly reduced price target of 1,180 pence from 1,200. Shire dipped 20 pence lower to 1,079.

On the upside, shares in Cadbury Schweppes were higher in late morning trade, lifted by the return of vague bid rumours and talk the confectionary and drinks group is planning to spin-off its chocolate business.

The stock has risen nearly 3 pct since Wednesday morning, helped by speculation that its US peer Hershey is looking for acquisitions to bolster its product line, following its weaker than expected Q4 numbers, released on Wednesday night.

Imperial Tobacco's stock got a boost following cautiously positive comment from Citigroup which said it expects the group to reveal "very strong trading in the first quarter of 2007". ITG shares rose 49 pence to 2,097.

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Asian shares close mostly lower on Wall St retreat

Hong Kong - Shares across the Asia-Pacific region closed mostly lower after Wall Street fell overnight, dealers said.

Tokyo shares closed lower on Wall Street and with investors also discouraged by the outlooks presented by Elpida Memory and NEC Electronics, dealers said.

Tamer-than-expected December inflation data released this morning sparked selling of key banking stocks, while fresh geopolitical concerns added to the negative mood after a report that North Korean leader Kim Jong-Il was absent from Pyongyang and might be under house arrest, they said.

But gains in domestic demand-related shares such as electric utilities, driven by dividend hopes, limited the index's fall, they added.

Analysts expect the benchmark Nikkei 225 index to be rangebound next week, moving within 17,200-17,500 points, with sentiment turning cautious amid the quarterly reporting season in Japan and the US and ahead of key economic data releases in both countries.

The Nikkei 225 Stock Average closed down 36.37 points or 0.21 pct at 17,421.93, off a low of 17,300.84. For the week, the index gained 0.6 pct.

The broader TOPIX index of all first-section issues ended the day down 1.38 points or 0.08 pct at 1,728.02, off a low of 1,714.92. For the week, the index added 0.8 pct.

The Australian market was closed for a holiday.

HONG KONG  shares were sharply lower in afternoon trade following Wall Street's retreat and falls in Chinese stocks, dealers said.

They said mainland China stocks were affected by fears the central government will introduce further tightening measures, such as an interest rate rise or bank controls.

They said selling was across the board, with many investors locking in profits after recent rallies.

At 3.30 pm the Hang Seng Index was down 356.80 points or 1.73 pct at 20,313.03.

In mainland China, however, A-shares in Shanghai and Shenzhen closed higher, as heavyweight banks shrugged off early weakness, helping to boost market sentiment, dealers said.

The Shanghai A-share Index rose 26.47 points or 0.88 pct to 3,028.36 and the Shenzhen A-share Index was up 8.95 points or 1.28 pct at 709.80.

Taipei shares closed lower as sentiment was undermined by the fall on Wall Street, with large-cap Taiwan Semiconductor Manufacturing Co Ltd (TSMC) leading the local technology sector down following the wafer foundry's lackluster
first-quarter sales guidance, dealers said.

The weighted index closed down 102.45 points or 1.29 pct at 7,821.32, having traded between 7,793.91 and 7,883.50. For the week, the index was down 18.76 points or 0.24 pct.

Seoul shares closed lower on heavy futures-linked program selling, as foreign investors turned net sellers ahead of the weekend, with the overnight retreat on Wall Street weighing on sentiment, dealers said.

Renewed worries over China's policy to slow its economy also added to the downward pressure, along with fresh concerns over geopolitical risk following a
Japanese media report that North Korea's Kim Jong-Il might be under house arrest, they noted.

Large cap IT stocks, banks and steel makers were hit hard, they added. 

The KOSPI index closed down 11.03 points or 0.80 pct at 1,371.33, after moving between 1,366.10 and 1,378.48. It ended the week with a gain of 10.77 points or 0.79 pct.

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Nickel jumped to a record high for an 8th straight day as critically low stocks dwindled further and as traders braced for possible strike action at a key mine.

At 12.22 pm, LME nickel for delivery in three months was at 38.500 usd a tonne after earlier hitting a fresh record high of 38,950 usd a tonne.

Shanta Gold said it has found "significant new, shear hosted gold mineralisation" at four new targets within the Singida greenstone belt in Tanzania.

It said drilling at Singida has hit the "highly encouraging" mineralisation in shallow reverse circulation drill holes.

Continued drilling of the previously announced Singida discoveries has confirmed grade and depth continuity of well-mineralised shear structures at Gold Tree, Jem, and Corn Patch, it added, while a survey over Singida has revealed "numerous new drill targets".

Oil edged up but held below 55 usd as traders weighed renewed doubt OPEC members are complying with their output cut pledges against an expected rise in demand for heating fuels in the US amid the recent cold snap.

At 10.45 am in London, front-month Brent North Sea crude contracts for March delivery were up 32 cents at 54.44 usd a barrel, after sliding 1.31 usd to settle at 54.12 usd yesterday.

Meanwhile, front-month New York light sweet crude contracts for March delivery rose 35 cents to 54.59 usd a barrel, after slumping 1.14 usd to close at 54.23 usd yesterday.

Prices fell yesterday after tanker tracker Oil Movements said it expects OPEC exports to rise in mid February, renewing doubts cartel members are complying with their 500,000 barrels per day (bpd) output cut set to begin Feb 1.

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